The Prepaid Press - January 2009 - (Page 6)

PREPAID BUSINESS Dec. 2008 / Jan. 2009 - 6 REGULATORY RUNDOWN by Ed Maldonado December 2008/January 2009 1. Prepaid Calling Cards: Distributor delays in payment cause providers to allocate regulatory fees early. 2. Prepaid Calling Cards: FTC fines and enjoins Canadian companies for practices associated with U.S. sales. 3. Stored Value & Payment Systems: FDIC insurance coverage to some open loop SVCs. 4. Prepaid Telecom: Congress to lame duck FCC: Focus on Digital TV transition …”Please.” 5. Prepaid Telecom: FCC seeks to revise or eliminate regulatory Flexibility Act rules. the FTC’s claims as well as settlement was that since 2004 the defendants failed to send the calling cards, but continued billing consumers as if they had agreed to keep the service which included a $19.95 one-time “activation fee” in addition to a $49.95 monthly fee. In the fall of 2005, the defendants also allegedly billed consumers for $24.95 without prior notice. While the Order imposes a monetary judgment of $3.46 million, all but $10,000 of the judgment has been suspended based on the defendants’ inability to pay. The caveat of the Order being that if later found to have misrepresented their financial condition, the entire amount is then due and payable. The settlement is important for those in the Prepaid Calling Card Industry in that it demonstrates that the reach of the FTC in sales of calling cards to U.S. consumers can cross national borders. Since 2004, the growing trend in the industry has been to maintain telemarketing operations off-shore or out-of-country to save money and avoid certain regulatory requirements. This recent case demonstrates that as far as the FTC is concerned, that bears little weight. Likewise, it draws FTC attention to Canada – a jurisdiction well known for its lax regulation over the Prepaid Calling Card Industry. What direction this may take is still uncertain. However, cross-border telemarketing of prepaid calling cards is definitely on the radar of the FTC. 1. Prepaid Calling Cards: Distributor delays in payment cause providers to allocate regulatory fees early. NATIONWIDE (December 1, 2008) Beginning in the later part of the Third Quarter, many prepaid hard card providers and carriers have been conserving their anticipated Universal Service Fund (USF), Telecommunication Relay Service Fund (TRS), The North American Numbering Plan (NANP), and Local Number Portability (LNP) contributions early. Recent practices by slow paying distributors and retailers (as much as thirty (30) to sixty (60) days late) have affected provider/carrier cash-flow and forced them to re-think how anticipated regulatory fees will be paid. Unlike the commercial aspect of the industry, late payments to regulatory fees bear penalties and interest assessed directly from the USAC, NECA and NANPA on all late or partial payments. Many prepaid calling card providers are bracing themselves now for the potential impact in the first quarter of 2009 due to the sluggish payments from retailers and distributors in fourth quarter of 2008. All prepaid hard card providers are advised to watch this issue over the next ninety days. 2. Prepaid Calling Cards: FTC fines and enjoins Canadian companies for practices associated with U.S. sales. WASHINGTON, D.C. (December 4, 2008) The Federal Trade Commission settled charges it brought against a group of Canadian telemarketers for alleged fraudulent sales of prepaid calling cards. The group included 9131-4740 Québec, Inc., d/b/a “Fusion Telekom”; JPE Holdings, Inc., d/b/a “Fusion Telekom”; Jean-Pierre Brault, individually and as an officer of 9131-4740 Québec, Inc., and Eli Foner, individually and as an officer JPE Holdings, Inc. As a condition of this settlement, the group has permanently barred the defendants from engaging in any similar crossborder fraud. The case originated in July 2007 when the FTC charged 9131-4740 Québec, Inc., 3. Stored Value & Payment Systems: FDIC insurance coverage to some open loop SVCs. WASHINTON, D.C. (December 12, 2008) The Federal Deposit Insurance Corporation (FDIC) is now aligning itself to policies set by General Counsel Opinion No. 8 FIL-129-2008 issued on November 13, 2008, qualifying funds of stored value network-branded cards placed in a de- …funds underlying a stored value card or other similar program qualify as “deposits” under the Federal Deposit Insurance Act… pository institution as depository accounts insured by the FDIC. The Opinion seems to have responded to concerns and issues raised by the Consumers Union and other advocacy groups in an August 24, 2008 letter to the FDIC asking to state whether FDIC insurance would apply to open-loop prepaid cardholders in the event of bank failures. Written by the FDIC’s General Counsel Ms. Sara A. Kelsey, the Opinion states that funds underlying a stored value card or other similar program qualify as “deposits” under the Federal Deposit Insurance Act insofar as they are placed in an insured depository institution and certain requirements to identify the individual cardholder are met. This implicates REG-D requirements for such accounts on an ongoing basis. The Opinion further states such funds would be subject to assessments and insurance limits as other depository accounts. Where the SVC program utilizes a pooled custodial account, the FDIC recognizes that cardholders of the stored value cards are owners of these deposits IF the FDIC’s standard requirements for “pass-through” insurance coverage are satisfied. IF NOT, the card distributor or the named accountholder will be the recognized owner. Such “pass-through” requires identifiable card balances and owners being available from either the bank or the SVC’s program management. The current insurance maximum, which will expire on December 31, 2009, is $250,000.00 USD per depository account owner. For stored value programs that are not predicated on anonymous end-user cards or accounts, mainly those that are network based and require knowing your customer policies to function, the Opinion Letter opens a new level of safeguards should economic conditions turn sour. Still left to be resolved from both legal and regulatory perspectives is the question of the impact of Opinion No. 8 on reloadable cards and similar SVCs. However, in light of banks tightening the extension of credit (REG-Z), FDIC insurance coverage to some SVCs may restore consumer confidence in purchasing and using stored value cards in 2009. SVC providers should check with their issuing banks to better determine if their program meets “pass-through” requirements for FDIC insurance coverage on a per cardholder basis. The loss of a significant number of small sized and independent telecom providers between 2002 and 2007 is one of the most cited by those critical of the FCC’s current RFA practice. JPE Holdings, Inc., and the companies’ principals with numerous violations of the United States FTC Act and the Telemarketing Sales Rule (TSR). Alleged claims included: 1) false representation that the defendants were with consumers’ banks or credit card companies; 2) misstating that consumers would receive a calling card; 3) billing consumers without their authorization; 4) using false or misleading statements in their telemarketing; 5) calling consumers whose numbers are on the National Do Not Call (DNC) Registry; and 6) failing to pay the fee to access the Registry’s phone numbers. Finalized by a Court Order, the settlement imposes a suspended monetary judgment of $3.46 million. This was filed in the U.S. District Court for the Northern District of Ohio, Eastern Division, approved by the Court on November 24, 2008 and became public today. The gist of 4. Prepaid Telecom: Congress to lame duck FCC: Focus on Digital TV Transition …”Please.” WASHINGTON, D.C. (December 18, 2008) The Federal Communications Commission cancelled a scheduled meeting for December 18, 2008 in apparent response to a letter sent from Sen. Jay Rockefeller (D-W. Vir.) and Rep. Henry Waxman (D-Cal.) to Chairman Martin. The meeting was set for the FCC to consider a plan for the future auction of the airwaves for free Internet use, and rules to address disputes between cable providers and content providers. It seems the gist of the letter was that if the FCC took on these issues at this juncture of the current administration, it would likely prove to be “counterproductive” to a larger concern of Congress for the FCC – the transition to digital television set for February 2009. The cancellation of this meeting underscores a growing tension between Congress and the FCC that will likely exist until the Obama Administration places its appointments on the Commission. While the letter clearly did not overtly state a directive, its “Please” request surely carried the Cheshire Cat’s Smile. Most observers do not expect the FCC to do much beyond the Digital TV transition in its lame duck term before President-Elect Obama’s inauguration. 5. Prepaid Telecom: FCC seeks to Revise or Eliminate Regulatory Flexibility Act Rules WASHINGTON, D.C. (December 18, 2008) The Federal Communications Commission published a plan for the review of rules in compliance with The Regulatory Flexibility Act also called “RFA”(5 U.S.C. 610) adopted by the FCC in 1997. The RFA governs the effect of new or modified regulation on small to mid-sized businesses. Over the years there have been several regulations and requirements placed upon the prepaid calling card and VoIP industries that have raised concerns regarding whether the FCC’s rules apply to the RFA, and whether there is adequate – if any – review of the impact such rules have on small to mid-sized businesses. The loss of a significant number of small sized and independent telecom providers between 2002 and 2007 is one of the most cited by those critical of the FCC’s current RFA practice. Many have also alluded to the lack of FCC ongoing review of the impact of regulations, such as USF contribution requirements, on small to mids http://www.fcc.gov/cgb/ecfs/ http://www.fcc.gov/cgb/ecfs/

Table of Contents Feed for the Digital Edition of The Prepaid Press - January 2009

The Prepaid Press - January 2009 Economic Crisis Sharpens Focus on Stored Value Cards Industry Veterans Weigh In on 2009 Prepaid Opportunities Contents From the Publisher: Ready for Change? The Prepaid Press Thanks its Editorial Advisory Board Regulatory Rundown 2008 Milestones Prepaid Wireless Providers Capitalize on Economic Downturn Prepaid Telecom in Brief APCC Services Settles With Calling Card Providers Boost Mobile Offers All-in-One Prepaid Package SonarTel Prepaid Customers Can Use Accounts in More Countries BillSoft Selected by Integra Telecom Pingo Adds PC “SoftPhone” Calling kajeet, the Cell Phone Service for Kids, Wins Award Prepaid Wireless Roundup The State of Prepaid Technology: Wholesalers & White Label Services New Millennium Releases Wireless Survey Results 5 Minutes With Paul Amick, EVP & Co-Founder, PhoenixSoft Millions Could Cut Cell Phone Bills in Half New Virgin Poll Reveals Buying Habits The Legal Line BioPay Expands Offering for Underbanked IDT to Sell European Prepaid Payment Business iPayStation Launches Network for Distributor Stored Value Solutions Appoints New VP Cellular South Offers Mobile Banking for Regions Bank Javelin Research: Processor Important in Prepaid MiCash Announces New Prepaid Debit Card Monitise and eCommLink Partner Platamovil Selects PhoenixSoft’s Cirrus Softswitch Prepaid Market Forecasts to 2011 Payments & Processing in Brief Prepaid 101: Gift Cards SCA’s PrizeSuite Enables Promotions MT&L Offers Gift Card Removal and Destruction Heartland Payment Systems Acquires Chockstone Amex and Rymax Offer Gift Cards TransCard Announces Corporate Gift Card Website Gift Cards & Promotions in Brief Our Advertisers Contact Us

The Prepaid Press - January 2009

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